1장
The Path to Wealth Lies in Automation, Not Willpower
The Automatic Millionaire isn't just another personal finance book-it's a phenomenon that has transformed millions of lives worldwide. Since its initial release in 2003, David Bach's straightforward approach has helped ordinary people build extraordinary wealth without budgeting, discipline, or get-rich-quick schemes. The book spent nearly a decade on bestseller lists, has been translated into fifteen languages, and became the foundation for Bach's appearances on shows like Oprah and Today. What makes this book so compelling? It demolishes the myth that you need a high income to become wealthy. Instead, Bach reveals a simple truth: automated systems-not willpower or budgeting-are the key to financial freedom. Even in today's post-recession economy, with millionaire households doubling worldwide in the past decade, Bach's approach remains more relevant than ever as technology makes implementing his strategies even easier.
2장
Meet the Millionaires Next Door
Jim and Sue McIntyre looked like average Americans when they walked into my financial advisory office. Jim, a utility company manager with a pocket protector, and Sue, a beautician with blonde highlights, seemed like typical middle-class clients. Then they dropped a bombshell: Jim was retiring-at just 52 years old.
I was skeptical. Most Americans struggle to retire at 65, let alone in their early fifties. When I expressed doubt, Jim simply handed me their financial documents. What I saw astonished me: despite never earning more than $40,000 annually, they had accumulated nearly $2 million in assets. Two fully-paid houses worth $775,000, retirement accounts exceeding $682,000, plus $160,000 in municipal bonds and $62,500 in savings-all completely debt-free.
"The McIntyres don't do debt," Sue explained with a chuckle. Their children were through college and financially independent. Beyond their impressive assets, they had ongoing income from investments and rental property, plus Jim's small pension.
When I asked if they'd inherited their wealth, Jim laughed heartily. "The only thing we inherited was knowledge. Our parents taught us commonsense rules about handling money. We just did what they said, and it worked."
The contrast was striking between the McIntyres and my other clients who appeared wealthy but were actually drowning in debt-like the Porsche-driving, Rolex-wearing man with minimal savings and massive obligations. The McIntyres, with their Ford Taurus and 18-year-old Timex, were genuinely wealthy while those who looked rich were often financially devastated.
Their secret? They reversed the typical approach to money: instead of paying bills first and saving what remained, they put aside money for themselves first, then paid bills. Though budgeting failed them, they followed Sue's mother's advice to automatically save 10% of income before they could spend it. They identified cigarettes as their personal "Latte Factor"-the small daily expense draining their finances-and redirected that money toward building wealth.
Most importantly, they made everything automatic. They didn't possess exceptional willpower or discipline. Instead, they "protected themselves from themselves" by setting up automatic payroll deductions, transfers, and payment systems that ensured they consistently saved and invested without having to exercise daily discipline.
Their story transformed my approach to finance. I automated everything, and it worked-I too became an Automatic Millionaire. Their method of building wealth slowly and steadily without requiring exceptional discipline can become your story too.
3장
Small Changes, Millionaire Results: The Latte Factor
The fundamental truth about wealth-building isn't about how much you earn but how much you keep. Most people mistakenly believe getting rich requires increasing income, when the real secret lies in controlling spending. I've watched friends increase their incomes dramatically-from $50,000 to over $500,000 annually-yet fail to increase their wealth proportionally. While their lifestyles expanded with fancier clothes, cars, and country club memberships, their savings didn't grow. They're actually more stressed now with expensive lifestyles to maintain, trapped in the same rat race as someone earning much less.
This phenomenon explains why most Americans have less than three months of expenses saved. We waste earnings on seemingly "small things" that accumulate to life-changing amounts, ultimately costing us our financial freedom.
I call this concept "The Latte Factor," born when a student named Kim challenged my teaching about saving money as unrealistic for someone living paycheck to paycheck. By walking through Kim's daily spending habits, I revealed she was spending $5 before work on lattes and muffins, plus another $6.20 on mid-morning snacks. This exercise demonstrated that if Kim saved just $5 daily and invested it with a 10% return, she could accumulate nearly $1.2 million by retirement. With her company's 401(k) match, this could grow to over $1.7 million-leading to Kim's realization that her daily lattes were effectively costing her millions in potential wealth.
The Latte Factor isn't just about coffee-it's about recognizing how small, unconscious spending habits prevent wealth accumulation. Everyone has their own version of unnecessary expenditures that, if redirected to investments, could build substantial wealth. The math is simple but powerful: $5 daily equals $150 monthly, which invested at 10% annually grows to $62,171 in 15 years and $948,611 in 40 years. Increasing this to $10 daily ($300 monthly) results in nearly $1.9 million over 40 years.
People often rationalize their financial situation with "yeah, buts"-excuses that block them from seeing solutions. Common objections include doubting the ability to earn 10% returns, worrying about inflation devaluing future savings, believing small investments aren't worthwhile, or claiming they don't waste money. These rationalizations prevent people from taking the simple steps that could transform their financial future.
To identify your personal Latte Factor, try tracking your spending for a day. This simple exercise can be life-changing-seeing your spending habits in black and white often provides the motivation needed to make meaningful changes. Technology now makes expense tracking easier than ever with apps like Mint.com providing comprehensive expense monitoring that shows exactly where your money goes. For automating your Latte Factor savings, Acorns.com offers an app that rounds up purchase amounts and invests the difference in exchange-traded funds.
A skeptical radio host once called The Latte Factor "the dumbest idea" but agreed to track his expenses for seven days. When I followed up, he admitted the exercise had "sickened him"-he discovered he was spending $50 daily just on eating out, totaling $16,800 annually. Meanwhile, he had less than $20,000 in savings and hadn't contributed to his 401(k) in ten years despite earning over $100,000 annually. This revelation prompted him to restart his retirement contributions immediately. Sometimes the simplest ideas prove most powerful.
4장
Pay Yourself First: The Golden Rule of Wealth
If The Latte Factor opened your eyes to the possibility that you already make enough money to build wealth, this principle will take you further by eliminating the need for budgeting altogether. The key is to Pay Yourself First-a simple approach that can make you rich.
Most people believe budgeting is the solution to financial problems, but this advice rarely comes from wealthy, happy people. The truth is very few of us are born to budget, and those who are often fall in love with born shoppers! Budgets don't work because they're not fun-they require depriving yourself today for future well-being, which goes against human nature and the 3,000 daily marketing messages urging you to spend. Like calorie-counting diets that fail when people get sick of deprivation, financial diets fail when people can't track every penny anymore and go on shopping binges.
If you want to be rich, simply do what most people don't: PAY YOURSELF FIRST. Most people pay everyone else first-landlords, credit card companies, the government-hoping to have something "left over" for themselves. This approach is financially backwards.
While 90% of people have heard of "Pay Yourself First," few truly understand or implement it. Pay Yourself First means exactly what it says-when you earn a dollar, you pay yourself before anyone else. Most people don't do this. Instead, they pay the government first through income taxes, Social Security, Medicare, and unemployment-as much as 35-40 cents of every dollar.
Why let the government take the first 30 cents of every dollar you earn if there's a legal way to avoid it? You can legally avoid federal and state taxes on your earnings by using pretax retirement accounts like 401(k)s, 403(b)s, IRAs, and SEP IRAs.
Despite what employers want us to believe, most of us work for ourselves and our families-not company mission statements or customers. To determine how many hours you worked for yourself last week, divide the amount you saved for retirement by your hourly income. Most people work less than one hour a week for themselves-nowhere near enough. Someone earning $50,000 a year (about $25/hour) should save $125 weekly (12.5% of income), which equals one hour's worth of income each day. Yet the average American saves less than 5% of earnings-barely 22 minutes a day for themselves.
Starting today, work at least one hour a day for yourself by paying yourself first with a minimum of 10% of your gross income into a pretax retirement account. By automatically putting just 10% of your gross income into a pretax retirement account, you'll eventually accumulate more wealth than 90% of the population. For someone making $50,000 annually, that's $5,000 a year or about $14 a day. If you invested $200 every two weeks for 35 years in an account earning 10% annually, you'd have $1,678,293.78.
Using a pretax retirement account actually reduces your spendable income by only about $10 a day, making it far more painless than you might think. Here's my Pay Yourself First formula: Dead Broke: Don't pay yourself first, spend more than you make, carry debt. Poor: Think about paying yourself first but don't do it. Middle Class: Pay yourself first 5-10% of gross income. Upper Middle Class: 10-15%. Rich: 15-20%. Rich Enough to Retire Early: At least 20% of gross income.
5장
Automation: The Key to Financial Success
For Pay Yourself First to be effective, the process must be automatic. Whatever you decide to do with the money-whether for retirement, emergency savings, college funds, or debt reduction-you need a system that doesn't depend on budgeting or discipline. In my years as a financial advisor, I found that only automatic plans truly work. Almost everyone who promised to manually write checks each month eventually stopped.
Jim and Sue McIntyre became Automatic Millionaires by setting up a system that automatically saved over 10% of their income for thirty-plus years. They started at just 4%, gradually increasing to 5%, then 7%, reaching 10% after four years, and eventually 15%. The key was automation-no checks to write, no discipline needed. Like them, I started small at just 1% of my income, increased to 3% within months, then jumped to 10% after meeting the McIntyres. Today, my wife and I strive for 20%. You'd be amazed how easily you adjust to living on less when the money never reaches your pocket.
If you're an employee, you likely have access to self-directed retirement accounts like 401(k) or 403(b) plans. These offer six key advantages: tax-deferred contributions and earnings, high contribution limits (up to $18,000 as of 2016), automatic payroll deduction, typically no fees, possible employer matching contributions, and the power of compound interest.
With tax-deferred retirement plans, you invest the full dollar before the government takes its 30% cut. This gives these investments a tremendous advantage. In just one year, $1.00 in a tax-deferred account can grow to $1.10, while $0.70 (after taxes) in a regular account might only grow to $0.77. Even better, if your employer matches contributions, your $1.00 could become $1.38-nearly double what you'd have in a regular after-tax account.
Despite these advantages, one in four eligible American workers hasn't signed up for their company retirement plan. If you're one of them, today is your sign-up day. Many companies now automatically enroll employees in 401(k) plans-a positive development since the original book. However, most use default savings rates under 4%, which isn't enough. Check your enrollment rate and increase it.
When completing your enrollment forms, choose a percentage of income rather than a specific dollar amount so your contributions automatically increase with raises. While 10% of gross income is ideal, start with whatever you can manage-even 1%-then gradually increase. Challenge yourself to save more than you think possible; if you believe you can save 4%, try 6%.
The pretax advantage makes retirement saving more affordable than most realize. Contributing $5,000 from a $50,000 income doesn't reduce take-home pay by $5,000, but only by $3,500 due to tax savings. This translates to just $290 monthly or less than $5 daily per person-a small sacrifice that most quickly adjust to.
If your employer doesn't offer a retirement plan, you'll need to be more proactive. An IRA is a personal retirement account anyone with income can establish at a bank, brokerage firm, or online. It serves as a financial holding tank for tax-advantaged retirement savings, allowing contributions up to $5,500 annually ($6,500 if you're 50+). The two main options are traditional IRAs and Roth IRAs, which differ primarily in when you pay taxes.
Through compound interest, $5,500 annually ($458 monthly) invested in an IRA earning 10% would grow to nearly $2.9 million over 40 years if started at age 25. Even beginning at age 40 would yield approximately $618,275 by retirement. While starting earlier is better, it's never too late to begin saving.
6장
Building Your Emergency Fund: The Sleep Well Factor
This chapter addresses financial security for today, focusing on emergency savings. Despite good planning, unexpected events happen-job loss, health problems, economic downturns. While some people worry about change, Automatic Millionaires prepare for it, ensuring they don't need to raid their retirement savings when problems arise.
Most Americans have less than three months of expenses saved, with many having less than one month's worth. Personal bankruptcies continue at over a million per year, likely to worsen with increasing home foreclosures. Unlike previous generations who maintained emergency savings, today's families often live paycheck to paycheck-typically depending on two incomes, making them financially vulnerable if one disappears.
Bach advocates building an emergency fund automatically, quoting his grandmother: "When the going gets tough, the tough have cash." He compares cash reserves to wearing a seatbelt-you don't plan accidents but prepare for them. Cash provides security, protection, and options when unexpected events occur, creating a financial cushion against life's uncertainties.
Bach outlines three essential rules: First, determine your cushion size-at minimum three months' expenses (multiply monthly expenses by three), though up to 24 months might be appropriate depending on your situation. Second, don't touch these funds except for genuine emergencies that threaten survival, not just comfort. Third, store emergency money properly-not like the seminar participant who buried $65,000 in his backyard, but in interest-earning accounts.
Bach warns against keeping emergency funds in typical savings or checking accounts that pay minimal interest and often charge fees. Instead, he recommends money market accounts that offer reasonable returns while remaining secure and liquid. These accounts invest in short-term government bonds and highly-rated corporate bonds.
To find the best money market rates, check financial publications like Wall Street Journal or use websites like Bankrate.com. These resources allow you to compare different rates and minimum deposit requirements across institutions. Since rates change daily and vary significantly between banks, doing your homework can make a substantial difference in your returns.
Once you've researched competitive rates, call your current bank to inquire about what interest your emergency money is earning. If it's earning nothing, ask about their money market options and compare their rates with what you found elsewhere. Simply asking questions can transform non-interest bearing accounts into income-producing assets.
Bach outlines a four-step process: 1) Select and open a money market account with good rates; 2) Set up direct deposit from your employer if possible; 3) Commit to saving at least 5% of your net pay each month; and 4) If direct deposit isn't available, arrange automatic transfers between your checking and money market accounts. The key is making the entire process automatic so you never miss a contribution.
For those with significant credit card debt, Bach recommends a modified approach: build just one month's worth of expenses in a security account, then focus on paying down high-interest debt. The logic is simple-it makes little financial sense to earn 1% on savings while simultaneously paying 20% on credit card balances.
7장
Homeownership: Your Path to Debt-Free Living
Bach introduces homeownership as the third critical secret to financial security, alongside Paying Yourself First and Making It Automatic. He emphasizes that owning your home and paying it off automatically creates a path to debt-free living before retirement.
Bach presents compelling evidence that homeowners build significantly more wealth than renters. Citing the Federal Reserve's 2014 Survey of Consumer Finances, he notes homeowners had a median net worth of $195,400 compared to just $5,400 for renters-making homeowners 36 times wealthier. Beyond financial benefits, Bach emphasizes the security and peace of mind that comes with owning rather than renting.
Referencing the McIntyres' success story, Bach highlights how they paid off their 30-year mortgage in under 20 years through accelerated payments. By their early fifties, they owned two homes debt-free, had accumulated nearly a million dollars in real estate equity, and enjoyed positive cash flow that enabled early retirement.
Bach outlines six key advantages of homeownership: forced savings (with less than 1.9% foreclosure rate), leverage (using borrowed money to multiply gains), OPM (using "other people's money" to build wealth), tax breaks (mortgage interest deductions), pride of ownership (security and community), and proven investment value (averaging 5.3% annual returns since 1968 according to the National Association of Realtors).
Bach addresses the primary obstacle to homeownership-the down payment. He dispels the myth that massive cash reserves are necessary, highlighting numerous programs from developers, lenders and government agencies that allow first-time buyers to finance up to 95-100% of purchase prices, though he cautions about ensuring affordability of monthly payments.
Bach reveals that your current rent payment could potentially fund a mortgage. At 2016 interest rates, every $1,000 in monthly rent could support $125,000 worth of mortgage. So someone paying $2,000 in rent could afford a $250,000 mortgage-enough for a substantial home in most markets.
Bach recommends 30-year fixed-rate mortgages for most people because they're simple and lock in low rates for three decades. However, he warns that 30-year mortgages benefit banks more than homeowners. On a $250,000 home with a 5% 30-year mortgage, you'll pay about $483,000 total-meaning $230,000 goes to interest. During the first ten years, over 90% of payments go to interest.
Bach's "secret system" is simple: get a 30-year mortgage but use a biweekly payment plan to pay it down automatically. Instead of making one monthly payment, Bach recommends splitting it in half and paying every two weeks. For example, with a $2,000 monthly payment, you'd send $1,000 every two weeks. This approach can help pay off your mortgage 5-10 years early and save the average homeowner $50,000 over the life of their loan.
The biweekly payment plan works because you end up making 26 half-payments annually (equivalent to 13 full payments) instead of 12 monthly payments. This extra payment each year dramatically reduces the loan term and interest paid. Bach demonstrates that on a $250,000 30-year mortgage at 5% interest, a monthly payment plan costs $233,139.46 in total interest, while a biweekly plan reduces this to $188,722.13-saving over $44,000.
For those who want the benefits of biweekly payments without fees or hassle, Bach offers two alternatives: simply add 10% to your regular mortgage payment each month, or choose one month per year to make a double mortgage payment. Both approaches provide similar savings to the biweekly payment plan with no additional charges.
8장
From Debt to Wealth: Creating an Automatic Debt-Free Lifestyle
Credit card debt is a trap that forces most people to work longer than necessary. Bach references Depression-era wisdom through Jim and Sue McIntyre's upbringing: borrowing only makes sense when purchasing something that can appreciate in value, like a home. The recent recession painfully reminded many of this principle.
Bach uses the Texan expression "big hat, no cattle" to describe people who appear wealthy but actually own nothing-their possessions are rented or purchased with credit cards, leaving them with massive debt despite outward appearances of prosperity. Americans collectively owe about half a trillion dollars in credit card debt alone, averaging $8,400 per household.
Most people pay only the minimum amount due on their credit cards each month. Paying just the minimum on an $8,400 balance with 18% interest will ultimately cost $20,615 in total payments. Paying only minimum payments on an $8,400 credit balance requires 365 monthly payments (over 30 years) to eliminate the debt-and that assumes no additional charges, late fees, or annual service fees.
Bach illustrates how easily credit card debt accumulates through store credit card offers. A $1,000 purchase with a "10% discount" incentive can take nearly thirteen years to pay off when making minimum payments at 18% interest, ultimately costing over $2,100-a great deal for the store but terrible for the consumer.
Bach presents five concrete steps to eliminate credit card debt. First, stop digging by getting rid of your credit cards-comparing carrying credit cards to an alcoholic carrying vodka. Second, call credit card companies to lower interest rates by speaking directly with supervisors who have authority to make changes. Third, split your Pay Yourself First money-half for savings and half for debt reduction. This "Bury the past and jump to the future" approach creates simultaneous progress on both fronts, preventing the discouragement that comes from focusing exclusively on debt before saving.
Fourth, use the DOLP (Done On Last Payment) system to prioritize multiple credit card payments. Calculate each card's DOLP number by dividing the balance by the minimum payment, then rank cards from lowest to highest number. Focus extra payments on the lowest-DOLP card while making minimum payments on others, then close each account as it's paid off and move to the next. Finally, set up automatic payments for credit cards through direct debits from checking accounts or online bill-pay services. This ensures consistent progress toward debt elimination without requiring monthly discipline.
9장
The Joy of Giving: Automatic Tithing
Bach transitions to his final principle, emphasizing that becoming an Automatic Millionaire isn't just about accumulating wealth but also about enjoying life now and in the future. He introduces the concept of giving as a way to feel like a millionaire before actually becoming one.
Bach acknowledges that while money is important ("I've seen rich and I've seen poor, and rich is better"), it won't give life meaning. He suggests that we pursue wealth not for material possessions but for the feelings they inspire, and proposes that we can access those feelings much sooner than we might think.
Bach explains that tithing is an ancient system of giving back a portion of what you receive. He emphasizes that tithing creates positive feelings of wealth and abundance before actually accumulating material wealth. The principle works because when you give, you experience the emotional benefits we often associate with acquiring possessions. Unlike material purchases that may lead to disappointment, tithing consistently makes you feel better the more you give.
Most people have encountered tithing in religious contexts, as the word originates from the Anglo-Saxon term for "tenth"-traditionally donating 10% of one's harvest. But Bach emphasizes tithing isn't about tradition, guilt, or future rewards-it's about experiencing the pure joy of giving. Paradoxically, those who give generously often find abundance flowing back to them, as giving creates a mindset of prosperity rather than scarcity.
Bach highlights America's remarkable generosity, noting that Americans donate approximately $358 billion annually to charitable causes, with individuals contributing over three-quarters of this amount. Nine out of ten American households give to charities, and about 93 million adults volunteer their time, averaging more than four hours weekly.
Bach encourages readers to try tithing even if they've never done it before. While traditional tithing involves 10% of income, he suggests starting with whatever percentage feels comfortable-even just 1%-and increasing it over time, similar to his Pay Yourself First approach. The key is consistency and commitment rather than focusing on specific percentages.
For tithing to be effective, Bach emphasizes making a consistent commitment rather than waiting to see what's "left over" at year's end. He recommends selecting a percentage that feels right and manageable, then making a written commitment to donate this amount regularly. This approach mirrors the Pay Yourself First principle, ensuring tithing becomes a priority rather than an afterthought.
Bach recommends automating your tithing through regular transfers from your checking account. Most charities can help arrange automatic debits, often setting this up online in minutes. Alternatively, you can establish automatic transfers through your bank's online bill payment system if you prefer not having charities directly access your account.
Bach observes that many successful business leaders and visionaries began tithing long before accumulating their fortunes. He highlights Sir John Templeton, a billionaire investor renowned for both financial acumen and philanthropy, who practiced tithing from his early days when he could barely afford rent. Even when Templeton and his wife earned just $50 weekly, they still managed to Pay Themselves First 50% of their income while tithing-and he became a billionaire.
